Michael Dell – I Bought The Company Back

Dell Strategy Highlights

• Provides a clear, concise overview of the strategy, businesses and priorities following privatisation
• His strategy focuses ‘transform, connect, inform, protect’ themes
• His businesses are end-user computing, enterprise, software and services
• ‘We’re now a family-run business again’, ‘The PC is not dead’, ‘I bought the company back’
• No longer needed the stock market for investment, or wanted to continue to focus on short-term issues

We had both Linkin Park and Michael Dell at Dell Technology Camp in Paris this week: I didn’t get a signed DVD from Michael, but he did provide a clear post-privatisation  view of Dell’s strategy, businesses and investment priorities following his successful purchase (with Silverlake). We believe it is in a better position than when public to develop its businesses away from the gaze of the stock market – see if you agree.

Dell Strategy – Transform, Connect, Inform, Protect

Michael came to Paris straight from a meeting with clients and partners in Frankfurt. He believes it’s an exciting time in the industry, with lots of things happening around Cloud, social, big data, mobile and security subjects. He has developed the company’s strategy from its customers’ priorities. In particular:

1. Transform – a move from legacy to more modularity and agile infrastructures, which is driving ‘Software Defined …’, Cloud and new Converged Infrastructure themes
2. Connect – access to data securely wherever you may be from any mobile device
3. Inform – covers storage and Big Data analytics; he claims it shipped more storage capacity than any other systems vendor in Q1; it aims to help people ‘make decisions in real time’
4. Protect – its new Connected Security strategy which encompasses numerous software and services offerings, many through acquisition; it has 2.5m firewalls installed

Dell developed each of these themes over the rest of the conference. Despite multiple acquisitions to become an Enterprise vendor with its own Intellectual Property, Dell manages to focus on its priorities more effectively than most competitors. He is happy after the shareholder vote and successful privatisation, joking ‘we are now a family-owned company again’.

Dell Business – Enterprise Revenues Are Growing, But The PC’s Not Dead

Dell has seen a 4-5 year shift in its business, with its Enterprise businesses (servers and services) growing from $10B in FY06 to $19B in the year to the end of June (see Figure). Not only has it made 30 acquisitions, but those companies also bought 100 or so others beforehand. It now has 4 businesses, which are:

1. End-user computing – Michael affirmed that ‘the PC is not dead’ as demonstrated by multiple products on show at the conference; it continues to diversify by launching Windows and Android tablets, revitalising its Workstation line (using Linkin Park video creation as a reference for Dell workstations) and by launching the M3800, promoting its Alienware gaming machines and embracing the move towards virtual clients through its acquired Wyse thin client business
2. Enterprise – Michael claims server market leadership in the US and ‘APJ’ regions and reported a 30-35% recent growth in Germany (see our Figure for its x86 market share by region – we disagree on ‘APJ’ as you see); it is helping customers use Direct Attached Storage closer to the server and with ‘Software Defined …’ issues, as well as ‘changing the game’ in the data centre and Cloud Computing (private, public and hybrid); during the conference we heard from Bill Peters of Caterham F1, who is saving on transportation costs to races by using the integrated VRTX system; Dell reported a 9% growth in its server and services business, which it classes as ‘Enterprise’ – more than either HP or IBM, as Michael pointed out; he also referred to an up-coming a 4 socket 6TB server for large Oracle applications
3. Software – Dell has amassed a considerable portfolio; it’s involved with systems management (in particular ASM), identity, intrusion detection, data protection, backup systems for data and applications and information management. It has 3 million Open Source Toad users for Business Intelligence and works with Oracle, Hadoop, MungoDB and other ‘new kinds of Open source database’
4. Services – ½ of Dell’s 110k employees work in services roles, although we think it is less well known than the other large systems suppliers; it is currently targeting middelstadt companies in Germany, has just opened up in Azerbaijan and is now offering Pro Support to 20 new countries in Africa; its services business encompass infrastructure, consulting, Cloud, SAP and Oracle; its Managed Security Services are used to safeguard the assets of banks, Pharmaceutical and ‘anyone with IP to protect’

Michael thinks in the US there is an affliction of short-term thinking – ‘just look at Federal politics’. Public companies are subjected to short planning cycles based on market expectations and the idea of privatisation was a reaction to that: he realised that Dell could do a lot more.

New Dell Investment Priorities

The new Dell looks remarkably like the old one – Michael kept a firm professional hand on the tiller throughout the privatisation process. However he outlined 5 priorities for the coming year. In particular:

1. Accelerating End-to-end solutions – its spending on research and development grew 25% last quarter and he wants to file more patents this year than last year; he wants more expertise in vertical industries and software
2. Targeting Emerging markets – it’s targeting ‘the next billion users’ and aiming to bring Enterprise-class IT to developing governments; it will continue to roll out Pro Support is all over world, which will also help multi-national customers
3. Expanding sales coverage and the sales force – partner business now accounts for 35% of Dell’s commercial business; it has also set up internal segment teams to target fast growing emerging companies (typically with 500-5000 employees – mid-sized in Dell’s classification)
4. Growing the client business – Michael said its intentions were misreported in the news before privatisation, but couldn’t say anything about it then; as we’ve seen in has strong plans to expand in virtual client, tablet and other areas
5. Building Its own systems to make it easier to do business with Dell – something it has always been good at

Michael no longer needed the stock market for investment as he did 25 years ago, as it generates billions of dollars in cash flow and can fund its own expansion.

Some Conclusions – A Family Business Once Again

Michael is proud that Dell is now a family-owned company again and he does a great job of discussing its strengths, vision and opportunities, albeit with customers, partners and market researchers as opposed to the stock market now. In fact his presentation – and the conference – was as full as ever of proof points and customer references as before. Of all the personal leaders of big computer vendors he has remained the most accessible since the beginning (I first met him at a customer meeting in Oxford Street, London in 1988) – a different leader might relish in more introverted behaviour and planning at this point. In truth he still needs to get the messages out that the PC is still important, that Dell is gaining share in the Enterprise, that it is a strong player in storage and networking and that it’s listening hard to understand its customers’ needs. Eventually Dell will need to handle Michael’s departure from the company – more difficult now he has taken an even stronger lead – but I don’t expect that will be for a long time yet.